How does GST rationalisation affect different sections of society in terms of essential product prices?

The Goods and Services Tax (GST) rationalisation refers to the revision and adjustment of tax rates on various goods and services to simplify the tax structure and reduce anomalies. Changes in GST rates on essential products directly influence their prices, which in turn affects different sections of society in distinct ways.

• Impact on Low-Income Groups:
  • Essential goods like food grains, medicines, and basic utilities form a large part of their consumption basket.
  • If GST on these items is reduced or kept at zero, it helps keep prices low and affordable for the poor.
  • Any increase in GST rates on essentials can disproportionately hurt low-income families, reducing their purchasing power.
• Impact on Middle-Income Groups:
  • Middle-class families spend on both essentials and some discretionary items.
  • GST rationalisation that lowers rates on mass-consumed goods can provide relief and increase disposable income.
  • However, if GST on certain essential services (like education or healthcare) increases, it can strain household budgets.
• Impact on High-Income Groups:
  • High-income groups are less affected by changes in prices of essential goods, as these form a smaller share of their expenditure.
  • GST rationalisation may have a bigger impact if it targets luxury goods, but changes to essentials have minimal direct effect.
• Long-Term Effects on Consumption Patterns:
  • Lower GST on essentials can boost consumption among lower and middle-income groups, improving nutrition and living standards.
  • Higher GST on non-essential or luxury goods can encourage more equitable consumption and generate more revenue for welfare schemes.
  • Frequent changes in GST rates may cause uncertainty, affecting consumer confidence and spending habits.